U.S. economic growth soars in 2nd quarter

Strong business investment and higher exports drove the U.S. economy ahead at a robust 4% annual rate in the second quarter before credit markets plunged into turmoil that was expected to brake future growth.

The Commerce Department on Thursday boosted its initial estimate of second-quarter growth in gross domestic product -- the measure of total goods and services output -- from the 3.4% that it estimated a month ago.

Although the second-quarter pace was the fastest since the start of 2006 and eclipsed the first quarter’s anemic 0.6% rate, analysts said growth had peaked and would slow sharply in coming quarters.

“It was nice to see that strong growth in the spring,” said Joel Naroff of Naroff Economic Advisors in Holland, Pa. “But that is history and the credit problems . . . imply that the third quarter could be extremely slow.”

Since the April-June quarter, a credit squeeze stemming from rising defaults for sub-prime mortgages has disrupted financial markets worldwide, raising concern that consumers will trim spending and cause expansion to slow.

Financial markets are closely watching for signs that the Federal Reserve may be willing to cut official interest rates to keep a slowdown from tipping into recession.

Fed Chairman Ben S. Bernanke is scheduled to speak today at a global central bankers’ annual retreat in Jackson Hole, Wyo., but it is unclear whether he will offer any hints on policy direction.

The government’s core personal consumption expenditure price index, a measure of inflation that strips out volatile energy and food prices, rose at a 1.3% annual rate in the second quarter, compared with a rise of 2.4% in the prior three months.

The main sources of the upward revision in second-quarter economic growth were healthier business investment and a better trade performance than the Commerce Department estimated a month ago.

Businesses boosted spending on plant expansion and equipment at an 11.1% annual rate, outpacing the 8.1% rate initially reported, the strongest since early 2006 and far ahead of the first quarter’s 2.1% rate.

Exports grew at a 7.6% rate, topping the 6.4% previously estimated and far ahead of the 1.1% rate in the first quarter. Imports shrank at a 3.2% rate rather than the 2.6% estimate after growing at a 3.9% rate in the first quarter.

In a separate report Thursday, the Labor Department said first-time applications for jobless benefits unexpectedly increased for a fifth consecutive week, the longest streak since May of last year, suggesting that the housing recession and related turmoil in credit markets were costing jobs.

Initial unemployment claims climbed by 9,000 to 334,000 in the week that ended Saturday, the highest level since April, the Labor Department said. The four-week moving average, a less volatile measure, rose to 324,500 from 318,250.